Home Depot raises forecasts after strong start to the year

Reuters News
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Posted: May 17, 2016 6:11 AM

By Sruthi Ramakrishnan

(Reuters) - Home Depot Inc <HD.N> boosted its sales and profit forecasts for the year after a stronger-than-expected first quarter, providing a rare dose of good news to a gloomy retail sector.

The world's biggest home improvement chain has benefited as consumers cut back spending on items such as apparel and accessories and instead spend more on big-ticket purchases such as houses and home renovations.

The company's quarterly results stand in stark contrast to those of retailers such as Macy's Inc <M.N> and Kohl's Corp <KSS.N>, which reported a drop in sales in the quarter.

"After last week's dismal set of retail trading updates, Home Depot provides some much needed relief and also an indication of where consumers are spending their money," Håkon Helgesen, an analyst at research firm Conlumino, said in a note.

Home Depot said its strong start to the year was helped by "week-to-week demand spikes caused by weather variability," which added $250 million to sales in the quarter.

"With a warm February we had a great start to the year and we saw outdoor project business in the north very, very strong," Chief Executive Craig Menear said on a call with analysts, adding that spring weather had yet to arrive in many markets.

The company said appliances, roofing, sheds and windows all sold well in the quarter ended May 1.

Home Depot sees strength in the housing market continuing.

"While U.S. GDP forecasts have pulled back slightly since we built our 2016 sales plan, we continue to see strength in the housing market, with home price appreciation (and) housing turnover and household formation trending where we thought they would," Chief Financial Officer Carol Tomé said on the call.

U.S. housing starts rose a stronger-than-expected 6.6 percent in April, data showed on Tuesday.

Housing starts hit their highest level in five months in February, before falling more than expected in March.

SAME-STORE SALES JUMP

Home Depot's shares, which as of Monday's close had risen 19.4 percent in the past 12 months, were down 1 percent in morning trading in an overall weaker market.

Shares of smaller rival Lowe's Cos Inc <LOW.N>, which will report on Wednesday, were also down 1 percent.

Sales at Home Depot's U.S. stores open for more than a year rose 7.4 percent in the quarter ended May 1, well above the 4.9 percent average forecast of analysts surveyed by research firm Consensus Metrix.

The company's net income rose 14 percent to $1.80 billion, or $1.44 per share, while net sales rose 9 percent to $22.76 billion. Analysts on average had expected earnings of $1.36 per share and revenue of $22.39 billion, according to Thomson Reuters I/B/E/S.

Home Depot said it now expected full-year earnings of about $6.27 per share, with overall sales growing about 6.3 percent and comparable sales increasing by about 4.9 percent.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Ted Kerr)